SALES & USE TAX FORUM (3.2)
Category: Business Aircraft - Tax
Author: Christopher Younger
STATE SALES AND USE TAX FORUM
Regional update on the Southeastern United States
This column is the second installment in the third annual series of quarterly columns describing recent changes to aviation related state sales and use tax issues (and, where pertinent, other aviation related tax issues in various regions of the United States). As was the case with our last series of quarterly columns, each will focus on a particular region of the United States – namely the Northeastern, Southeastern, Mid-Western and Western States.
Here, we will review any recent changes to state sales and use taxes in the states located in the Southeastern region of the United States, namely Alabama, Arkansas, Florida, Georgia, Kentucky, Louisiana, Mississippi, North Carolina, South Carolina, Tennessee and Virginia.
Additionally, we will discuss whether or not each state has a “fly-away” exemption from its sales and use tax. This typically permits a buyer of an aircraft who takes delivery of the aircraft in a particular state to remove the aircraft from that state following the purchase of the aircraft without paying that state’s sales or use tax (provided that the conditions of the exemption are met).
Without further ado, here’s a lowdown on state sales and use taxes within the individual states; any changes introduced, or due, within said state; and whether that state has a fly-away exemption from its sales and use taxes:
There have been no recent material changes to Alabama’s sales and use tax laws with respect to aircraft and aviation related matters. With respect to sales of aircraft, Alabama has a state general sales tax of 2%, plus potential additional local taxes, which can amount to a combined total sales/use tax of up to 5%.
Alabama has a very narrow fly-away exemption from its sales and use taxes. The exemption is available only for aircraft that are manufactured, sold and delivered in Alabama. Additionally, a qualifying aircraft must not be domiciled in Alabama and must be removed from Alabama within three days of the date of its delivery.
There have been no recent material changes to Arkansas’ sales and use tax laws with respect to aircraft and aviation related matters. Arkansas has a state-wide general sales tax of 6%, plus potential additional local taxes, which can amount to a combined total sales/use tax of up to 11%.
Effective January 1, 2008, the collection of city and county sales/use tax has been limited to the first $2,500 of gross receipts, gross proceeds or the gross sales price of aircraft and purchasers in certain situations are entitled to a credit or rebate for payment of county or municipal sales or use tax exceeding that amount for a single transaction.
Arkansas has a very narrow fly-away exemption from its sales and use taxes. The exemption is limited to the sale of new aircraft manufactured or substantially completed in Arkansas when sold by the manufacturer or person that substantially completed the aircraft to a purchaser for use exclusively outside Arkansas. The purchaser may take delivery of the aircraft in Arkansas solely for the purpose of removing the aircraft from Arkansas under its own power.
There have been several recent material changes to Florida’s sales and use tax laws with respect to aircraft and aviation related matters.
All aircraft sold and/or delivered in Florida are subject to Florida's 6% sales tax unless the transaction is specifically exempted by law. Furthermore, if the aircraft is delivered into a county that imposes a discretionary sales surtax, then dealers must also collect this tax. However, discretionary sales surtax applies only to the first $5,000 of the aircraft purchase price.
Effective July 1, 2010, a newly enacted law exempts from Florida use tax aircraft owned by a non-resident when visiting Florida during the first six months that the aircraft is owned, as long as the aircraft is not in the state for a total of more than 21 days during this period. Non-resident aircraft owners are also allowed to bring their aircraft to Florida for flight training in their aircraft, or to have repairs and/or modifications performed on their aircraft during the first six months of ownership without any limit on the extent of the stay.
A non-resident aircraft owner may prove compliance with the requirements of these newly enacted exemptions by invoices for fuel, tie-down, or hangar charges issued by Florida and out-of-state vendors or suppliers, or similar documentation that clearly and specifically identifies the aircraft.
Due to the enactment of these new exemptions, effective as of the same date, a provision of Florida sales and use tax laws was eliminated: That provision, which stated that an aircraft purchased in Florida could be returned to Florida for repairs within six months after the date of its departure without incurring liability for the payment of tax or penalty on the purchase price of the aircraft if certain requirements were met, became unnecessary once the broader exemption described above became effective.
Furthermore, the mandatory non-waivable penalty imposed upon a purchaser who failed to remove an aircraft from Florida within the specified amount of time following a repair or alteration was also eliminated.
The Florida Department of Revenue (DOR) has informally ruled that the new exemptions described above do not apply to leases of aircraft. The reasoning behind the DOR’s position is that, because in a lease structure the owner’s liability to the state of Florida is for sales tax on rent paid by the aircraft lessee, not for use tax, the lessor owner is not exempt and that, since the lessee is not the owner of the aircraft, the exemption as written does apply to the use tax owed by the lessee.
A coalition of aviation associations is working on a legislative initiative that would amend the language of the existing exemptions to clarify that they also apply to leases of aircraft.
Another partial exemption from Florida sales tax became effective as of July 1, 2010. That partial exemption applies to purchases of an interest in aircraft and for parts or labor used in the completion, maintenance, repair or overhaul of an aircraft that primarily will be used in a fractional aircraft ownership program. The amount of tax on the sale or use of a fractional aircraft ownership interest is capped at $300. The maximum tax applies to the total purchase price of the fractional ownership interest, including monthly management or maintenance fees, when sold by, or to the operator of the fractional ownership program or transferred upon the operator’s approval.
The Florida Department of Revenue has provided guidance regarding the new exemptions described above in Tax Information Publication, No. 10A01-07 dated June 29, 2010.
Florida has a limited fly-away exemption from its sales and use tax. Sales and use tax is not imposed on aircraft sold through a Florida registered dealer to a purchaser who, at the time of taking delivery, is a non-resident of Florida, does not make his or her permanent place of abode in Florida, and is not engaged in carrying on in Florida any employment, trade, business, or profession in which the aircraft will be used in Florida, or is a corporation none of the officers or directors of which is a resident of, or makes his or her permanent place of abode in, Florida.
For the exemption to apply, the purchaser must remove the aircraft from Florida within 10 days after the date of purchase or, when the aircraft is repaired or altered, within 20 days after completion of the repairs or alterations.
Georgia has a state general sales tax of 4%, plus potential additional local taxes, which amount to a combined total sales/use tax of up to 8%.
A temporary exemption from Georgia sales and use taxes for the sale or use of engines, parts, equipment, and other tangible personal property used in the maintenance or repair of aircraft when such items are installed on such aircraft that is being maintained or repaired in Georgia and is not registered in Georgia expires on June 30, 2011.
Georgia has a very narrow fly-away exemption from its sales and use taxes. Sales of aircraft manufactured or assembled in Georgia for use exclusively outside Georgia are exempt from Georgia sales and use taxes if the purchaser takes possession from the manufacturer or assembler within Georgia for the purpose of removing it from the state under its own power when the equipment cannot reasonably be removed by other means.
There have been no recent material changes to Kentucky’s sales and use tax laws with respect to aircraft and aviation related matters. Kentucky imposes a statewide sales/use tax rate of 6%.
Kentucky does not have a fly-away exemption from its sales and use taxes.
There have been no recent material changes to Louisiana’s sales and use tax laws with respect to aircraft and aviation related matters. Louisiana imposes a statewide sales/use tax rate of 4% on aircraft plus additional local (parish) taxes that can be nearly equal to the state rate.
Louisiana has a very narrow fly-away exemption from its sales and use taxes. Exempt from Louisiana sales tax is the sale of Louisiana manufactured or assembled passenger aircraft with a capacity in excess of fifty persons, if, after all transportation, including transportation by the purchaser, has been completed, the aircraft is ultimately received by the purchaser outside of Louisiana.
There have been no recent material changes to Mississippi’s sales and use tax laws with respect to aircraft and aviation related matters. Mississippi imposes a statewide sales/use tax rate of 3% on aircraft purchases.
Mississippi does not have a fly-away exemption from its sales and use taxes.
There have been no recent material changes to North Carolina’s sales and use tax laws with respect to aircraft and aviation-related matters. Sales at retail of aircraft, including all accessories attached when the purchaser takes delivery of its aircraft, are subject to sales tax at a rate of 3%, with a maximum $1,500 tax. Sales of aircraft are not subject to North Carolina local sales tax. Casual sales of aircraft by an individual not engaged in the regular sale of aircraft are exempt from the sales tax and use tax.
North Carolina does not have a fly-away exemption from its sales and use taxes.
There have been no recent material changes to South Carolina’s sales and use tax laws with respect to aircraft and aviation related matters. South Carolina imposes a statewide sales/use tax rate of 5% on aircraft purchases with a maximum sales tax of $300.
South Carolina does not have a fly-away exemption from its sales and use taxes.
There have been no recent material changes to Tennessee’s sales and use tax laws with respect to aircraft and aviation related matters. The sales/use tax rate is 7%, plus 2.75% of the sales price in excess of $1,600 and up to $3,200. Additionally, local sales/use tax rates of between 1.5–2.75% also apply to the purchase, and there is also a tangible personal property tax on aircraft held for business use.
Tennessee has a limited fly-away exemption from its sales and use taxes. The exemption is available only for sales of aircraft to aircraft purchasers who (i) are non-residents, (ii) intend for the aircraft to have a situs outside Tennessee and (iii) remove the aircraft from Tennessee within 15 days of the date of the purchase of such aircraft.
There have been no recent material changes to Virginia’s sales and use tax laws with respect to aircraft and aviation related matters. Virginia imposes a special 2% aircraft sales and use tax on aircraft purchases, and aircraft required to be registered in Virginia. The state of Virginia does not have a fly-away exemption from its sales and use taxes.
In concluding this month’s Regional Sales & Use Tax Forum, you are advised to keep in mind that the above article serves as a general and broad overview of state sales and use tax laws and does not constitute legal advice or a legal opinion. Therefore, it is always advisable to consult with qualified aviation counsel when considering any questions regarding the application of sales and use tax in a particular situation or to a particular transaction.
In the April 2011 issue of World Aircraft Sales Magazine, we will take a state-by-state look at the mid-western United States, including: Illinois, Indiana, Iowa, Kansas, Michigan, Minnesota, Missouri, Nebraska, North Dakota, Ohio, Oklahoma, South Dakota, West Virginia and Wisconsin.